Incoterms_® and Commercial Contracts

We will now examine the position taken by arbitral tribunals with respect to a possible application of the lex mercatoria as the law governing the contract in dispute.

4.1 Arbitral tribunals will normally respect a decision of the parties to submit the contract to lex mercatoria

Cases where the parties have expressly chosen the lex mercatoria as the applicable law are rather exceptional³¹, such choice being made more frequently in the course of the arbitration proceedings³².

Where the parties have made an express choice of the lex mercatoria or general principles of law, this choice will in principle be respected by the arbitrators³³.

In fact, while private international law rules tend to exclude a possible choice of transnational rules as the applicable law, national rules governing arbitration tend to recognize the freedom of the parties to have their disputes decided in accordance with general principles of law.

See for example, Article 1511 of the French Code of civil procedure (Decree No. 2011-48 of 13 January 2011):

«Le tribunal arbitral tranche le litige conformément aux règles de droit que les parties ont choisies ou, à défaut, conformément à celles qu'il estime appropriées»

where the reference to “rules of law” means that the arbitrators may apply non-state law.

See also: Article 187 § 1 Federal Statute on Private International Law (Switzerland); Article 28 § 1 of the UNCITRAL model law.

Furthermore, the rules of arbitration of the major arbitration institutions also recognize that arbitrators can apply "rules of law". Thus, for example, Article 21(1) of the ICC arbitration rules states the following[Page24:]

Applicable rules of law
The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.

4.2 Arbitral tribunals will not apply lex mercatoria if the parties have expressly chosen a domestic (national) law

If the parties expressly choose to submit their agreement to a national law, arbitrators will have to apply that law, even if such law appears to be inappropriate in the case of an international transaction.

There is nevertheless some space for "correcting" or "integrating" inadequate domestic laws through the reference to general principles, Unidroit Principles, trade usages, but only to the extent this is admissible under the applicable domestic law.

If the parties have chosen a domestic law as the applicable law together with transnational rules (such as, for instance, the Unidroit Principles), arbitrators will in principle face the same problems described above in § 3.3. However, since arbitrators are not bound to respect a specific system of private international law, they will have a greater discretion when deciding on possible conflicts between the transnational rules and the applicable law.

4.3 Arbitrators may, in exceptional cases, apply the lex mercatoria instead of a domestic law when the parties have made no choice of the applicable law

If the parties have made no choice, the arbitrators will in most cases apply a domestic law determined on the basis of the principles of private international law or by a direct choice.

Only in rather exceptional cases have arbitrators applied the lex mercatoria in the absence of a choice by the parties in favor of this solution.

A very famous case of this kind is the Norsolor case³⁴, where the arbitrators applied the lex mercatoria in a dispute regarding the termination of a contract between a French principal and a Turkish agent. The agent claimed to be indemnified for the goodwill developed during the contract, but the right to receive this type of indemnification was recognized only by French law (and not by Turkish law). The arbitrators argued that, in the case in question, the conflict of law rules did not warrant an unequivocal solution and consequently decided as follows:

«Faced with the difficulty of choosing a national law the application of which is sufficiently compelling, the Tribunal considered that it was appropriate, given the international nature of the agreement, to leave aside any compelling reference to a specific legislation, be it Turkish or French, and to apply the international lex mercatoria.» [Page25:]

In the context of the lex mercatoria the tribunal applied the principle of good faith and awarded on this basis damages to the agent.

In several other cases the arbitrators applied lex mercatoria or general principles of law (including in certain cases the Unidroit Principles as part of the lex mercatoria) when it appeared that neither party wanted to apply the other party's law³⁵or when the parties expressed the desire to have the dispute decided on the basis of non-state rules, for instance through a reference to international law³⁶, or «according to the laws of natural justice»³⁷.

Another interesting example is the Arthur Andersen case³⁸, where the arbitration clause provided, with respect to the applicable law, the following:

The arbitrator shall decide in accordance with the terms of this Agreement and of the Articles and Bylaws of Andersen S.C. In interpreting the provisions of this Agreement, the arbitrator shall not be bound to apply the substantive law of any jurisdiction but shall be guided by the policies and considerations set forth in the Preamble of this Agreement and the Articles and Bylaws of Andersen, S.C., taking into account general principles of equity […..]».

The sole arbitrator decided to apply «the general principles of law and the general principles of equity commonly accepted by the legal systems of most countries», and in particular the Unidroit Principles, qualified as a «reliable source of international commercial law in international arbitration».

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